Housing set to give economy a boost in ‘13

Home sales are set to keep marching upward this year after hitting their highest level in five years in 2012, economists say. Existing-home sales for the full year rose 9.2 percent from 2011, according to preliminary data, the National Association of Realtors (NAR) reported Tuesday.

New home sales, which will be reported Friday, have also been improving. Housing is finally contributing to the economy’s growth instead of pulling it down, Moody’s Analytics chief economist Mark Zandi says. He expects housing to contribute a fifth of the economy’s growth this year. In 2009, it subtracted more than 1 percentage point from GDP growth, he says.

Housing has historically led the U.S. economy out of recessions. Now that housing appears to be mending, with prices rising and more new construction, “the recovery will start to feel more normal,” says David Crowe, chief economist for the National Association of Home Builders. New home sales are especially important to the economy because buyers spend money on other items, such as furnishings, appliances and landscaping.

Rising home values also increase household wealth. December’s existing-home sales, down 1 percent from November to a seasonally adjusted annual rate of 4.94 million, were almost 13 percent higher than a year earlier, the NAR says. Last month’s numbers were weaker than expected, but “the trend is still up,” says Liz Ann Sonders, Charles Schwab chief investment strategist.

Home sales – and prices – are being driven higher by:
• Low interest rates. Average interest rates for 30-year-fixed loans have been below 4 percent for the past 14 months, Freddie Mac data show.
• Job growth. The unemployment rate stood at 7.8 percent in December, down from its peak of 10 percent in fall 2010. A better job market is helping more people move out of friends’ and relatives’ homes into their own. Net household formations topped 1 million in each of the past two years, Sonders says. That’s more than twice the level of 2009 and 2010.

Not all economists see brighter days ahead for housing, given what market researcher CoreLogic says was a 7.4 percent jump in home prices in November from a year earlier. Higher taxes and cuts in government spending, along with still-tepid job growth, will weigh on the market this year, says Steven Ricchiuto, chief economist for Mizuho Securities.